Sunday, April 09, 2006

Shocking Lesson in How the Market Works in Toronto

When you own a place in Vancouver, you tell yourself certain things. Of course, you're living in the most beautiful city ever imagined, and spring starts in February, and the Winter Olympics will make everyone richer. But more than that, you convince yourself that you're living on the most coveted soil in the country.

It's the only way to survive the eternal rain.

But the illusion shatters when you do what I did: leave the West Coast for a job in Toronto, and learn what hot real estate really looks like. Indeed things are so scorching here that the laws of haggling have been flipped on their head. Buyers don't negotiate down. They go up, sometimes in six-figure leaps. And it's so common across the city -- at least in the "desirable" neighbourhoods -- that now it seems normal.

It isn't -- at least, not outside of Toronto.

In Vancouver, the city that's supposed to have the frothiest market in the country, people do not make a habit of submitting opening bids $50,000 to $100,000 over the list price.

To our great regret, Vancouverites don't do that at all.

On Jan. 13, we put our split-level home in Port Moody, a suburb 20 kilometres east of the city, on the block. Looking at our three-bedrooms, double garage, landscaped backyard, and quiet spot at the end of a cul-de-sac, our real estate agent suggested $475,000, figuring it would give us a good shot at fetching something in the mid-$460,000s. She pooh-poohed an open house, saying they "just bring the neighbourhood women in to check out your kitchen."

Over the next two weeks, we had 16 private showings, resulting in two offers, both $5,000 or more under list, both conditional. The first slipped off the table after eight days, when the buyers couldn't sell their home. The second was contingent upon financing and a property inspection.

Their offer was $470,000, a figure that not only seemed reasonable, but after 17 days on the market, appeared to be as good as our house was going to get. So we accepted, and happily so. After all, it took less than a month, and we were almost at list. How much better could it get?

Oh, it can get a lot better, as we've now discovered. Just not in Vancouver, despite all of the hot-market hype.

Whether in the 'burbs or downtown, a well-priced home can expect to sell within a few weeks, "at list or slightly under," says Ron Vandenberg, with Re/Max All Points Realty in Vancouver. Bidding wars can and do happen, he acknowledges, but it's not the norm, nor has it been in recent memory.

Of course, it needs to be said that the average price of a house in Greater Vancouver is $470,495, according to February figures provided by the city's Real Estate Board, a full $117,000 more than the Greater Toronto average. Still, there's a difference between pricey homes and a sizzling market.

When your agent, like ours here, doesn't bother to show you homes that have been on the block for more than a week because they must have termites, rats or a caved-in roof, you know you're on sweltering turf.

In fact, of all the $350,000 to $600,000 properties we saw in the Beaches, Davisville, Allenby, Bloor West Village and the Danforth area over a six-week hunt, not one was being sold in the same way as our place in British Columbia.

If you've looked at homes in Toronto lately, you know the deal. In the "vast majority" of instances, says Diane Litchen, an agent with Harvey Kalles Real Estate, a house will go on the market on Tuesday or Wednesday, be open for viewings on Saturday and Sunday, and be eligible for offers at 6 p.m. a few days later.

The rationale is obvious: Every sale becomes an auction. And buyers know they have to move fast and bid aggressively to win.

The list price isn't meaningless -- it just, um, doesn't reflect the price of the house. Its role is simply to establish the ballpark, while making the place seem more affordable to pack the weekend traffic.

The system works: a home we badly wanted in the Beaches listed for $450,000, attracted more than 125 people on the weekend, and sold for $653,000.

Another in Bloor West Village entered the market at $489,000, but left $124,000 higher.

Indeed, the couple we eventually bought from admitted they would have cancelled the process immediately if the highest offers were anywhere near the "official" price.

The place we wanted was a three-bedroom, semi-detached in Davisville, just east of Bayview and south of Eglinton, on a nice street with good schools and shopping nearby. "Officially," the house was going for $449,900, which for a starting point seemed fathomable.

Alas, it's only the end price that counts, and what would that be? We were willing to go up to $550,000, but were hoping to escape at closer to $500,000.

This much we knew: Nearly 50 parties had toured the house privately and 75 attended the open house, yet by Wednesday morning, no one had registered an offer.

Here's where the brinkmanship comes in. Unfortunately, nobody seems to know what the best strategies are, or even how to win without blowing your brains out. One approach is to register an offer -- without citing a figure -- as early as possible, to scare off other buyers. In theory, that makes sense. In fact, there's no downside, but for some reason, people tend not to do it.

Instead, they wait until the last possible second to express their interest. And that what's happened in Davisville.

Two hours before the deadline, one offer emerged. By show time though, there were five, including ours.

Accepting the formula, put forward by our agent that the price grows by 3 per cent with each player at the table, "our" house's value soared nearly $565 a minute as the clock wound down.

We'd later discover the sellers were hoping to land somewhere between $505,000 and $525,000. But, of course, we didn't know that. Nor did we know if they were going to allow anyone a second bid. And naturally, we didn't know what the other four had submitted, or how high they were prepared to go.

At 6 p.m., we offered $540,000, a figure that made a mockery of the 3-per-cent formula (that would have worked out to $517,000), but which our agent insisted was "reasonable."

Reasonable? Going $90,000 over the list price on the opening bid is reasonable? Maybe yes, maybe no, but it got us the house. And gave us a whole understanding of how hot it can get away from the coast.